AUD/USD: Markets underestimate upside - CIBC
|Jeremy Stretch and Bipan Rai, analysts at CIBC, point out that the market is extremely short in AUD and has already priced out any action from the RBA at least until next autumn. They forecast, AUD/USD at 0.74 during Q4 and at 0.76 in Q2 2019.
Key Quotes:
“We’re still maintaining our optimistic outlook on the AUD over the next 12 months. Yes, we understand that there are concerns related to the Chinese economy and that domestic wages are still far from levels that would worry the RBA about policy being too loose. Additionally, credit conditions have tightened, causing private sector credit growth to slow.”
“The market has already priced out the RBA until at least next autumn. Additionally, for all the headlines on trade and a slowing Chinese economy, implied demand for iron ore is still at reasonable levels. The RBA has taken pains to point out that it views wages as having ‘troughed’ already while domestic growth is expected to be above 3% for both 2018 and 2019.”
“Markets are extremely short AUD in the proxies that we use. Crowded positions should beget an AUD rally over the coming months with Q3 CPI (October 30th), Wage prices (November 13th) and Q3 GDP (December 4th) among the key risk events to monitor.”
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